THE champions of Fortescue Metals are now waving the pompoms for Tony Poli's Aquila Resources as one of the next big things on the resources landscape. With coal in the Bowen Basin and iron ore in the Pilbara, it is easy to see why Southern Cross has decided to throw some research resources at Aquila for the first time. Just like Fortescue, Aquila has had a big run-up in its share price over the past 12 months, with investors sitting on gains of about 300 per cent. That is despite the fact that the company is still years away from bringing to life its West Pilbara iron ore play and achieving a targeted coal production of 10 million tonnes. "Aquila is at the early stage of a long-term growth story," Southern Cross analyst Robert Bishop told clients as the broking house initiated coverage of Aquila. "Currently earnings are modest, with only one coal mine in production. More significant earnings are five years away, as the West Pilbara iron ore project and the Eagle Downs and Belvedere coal mines crank up. However, as additional projects are de-risked through further evaluation, approvals and funding, and if the full potential of the assets is realised, we expect further value to be recognised." While Southern Cross has put an initial 12-month share price target for Aquila stock of $16.80, it adds that the shares would be worth more than $20 each if bulk prices remain high and development risks are overcome to support the broker's "upside case" for the company.
Aquila's new billionaire gets ready to split
EVEN though he is Australia's newest billionaire miner, Aquila Resources boss Tony Poli says he has no qualms about starting the dream over again.
But he isn't splitting the company he founded for personal ambition -- it is designed to give investors a better idea of the potential of Aquila and its long-term future in coal, iron ore and manganese.
Yesterday, Poli revealed that what was once a single company will now become two, as Aquila divests its exploration assets stretched across two continents into a new vehicle called Aquila Exploration.
Others call it Aquila Mini Me.
The demerger announcement, which is by way of a scheme of arrangement and expected to be completed in November, was lapped up by the market with investors adding a cool $240 million to the growing market capitalisation of Aquila, which yesterday stood at $3.82 billion.
Poli owns 30 per cent of the company. Investors will be given one share in the new vehicle for each share they own in Aquila Resources.
The parent company will retain the more advanced projects, such as the $3.9 billion West Pilbara iron ore project, a 20 million tonne a year operation due on stream by about 2012, and the Eagle Downs, Belvedere and Isaac Plans coal projects in Queensland.
Apart from getting all the exploration rights to Aquila's assets, Aquila Exploration will house a collection of grassroots coal, iron ore and manganese projects in southern Africa and Australia.
But Aquila Resources isn't going to leave its junior partner in the lurch, giving it $20 million so that it can hit the ground running.
"In terms of Aquila Exploration, we've been very successful in the past in driving value with limited funding," Poli says. "We're not raising any money. Therefore existing shareholders won't be diluted down.
"It's also an opportunity for us to recruit new people and incentivise them from a much lower base."
Poli says there is little value being put on the exploration assets in Aquila's share price. The Washpool and Red Hill metallurgical coal projects in Queensland, to be housed in Aquila Exploration, should have resource statements delivered to the market shortly.
"What I was getting at when I was presenting the company was that there were too many projects for people to get their heads around," Poli says. "It's easier to talk to investors when you can have a focus on what is the developing assets and what is the exploration assets."
Poli declines to reveal what he thinks would be a fair indicative value on the new vehicle.
"The scheme documents will have an indicative value on Aquila Exploration and then obviously the market will make up its own mind what it thinks it's worth."
As you would expect, Poli shies away from making any noise on his growing personal fortune. "I'm still the same person; nothing has changed," he says. "I'm still sitting here in my jeans and my $20 shirt."
Aquila moves into predators' sights.
Aquila Resources' decision to spin off an exploration arm and Arcelor-Mittal's move on Macarthur Coal have only heightened the takeover speculation hanging over Aquila.
[...] In Aquila's case its half share in a possible 30 million tonne a year iron ore operation makes it even more attractive, particularly to growing iron ore businesses such as Anglo American and Vale.
The move by Aquila on Friday to spin off its early stage project as Aquila Exploration has been read by some as a precursor to the sale of the iron ore and coal development projects.
Given Macarthur founder Ken Talbot has indicated he is ready to cash out of his coal investment, it's not unreasonable to think the boards of Aquila and Felix may do the same.
Market investors should have been rightly excited after news on Friday from Aquila Resources Ltd (ASX:AQA) that the company will spin off part of its business. 26/05/2008 11:00AM AEST
Market investors should have been rightly excited after news on Friday from Aquila Resources Ltd (ASX:AQA) that the company will spin off part of its business through a one-for-one share arrangement in a new, separately listed company called Aquila Exploration (AEL).
After the initial scramble for Aquila shares, they settled 97c higher at $15.45 on a turnover of 468,531 shares, well above the average daily volume over the week.
The company will separate the exploration business from its production and advanced development assets into Aquila Exploration in order to unlock the underlying value of these assets.
The company's current exploration assets, which principally comprise the southern African coal, iron ore and manganese exploration interests, together with the Queensland coal exploration projects, will be consolidated into Aquila Exploration.
Subject to shareholder, court, regulatory and other approvals, the demerger process should be completed by the end of November, with the record date for determining an entitlement to AEL shares likely to be in the fourth quarter of this calendar year.
Owing to foreign regulatory requirements, certain overseas shareholders will not receive shares in AEL.
The AEL shares they would have been entitled to receive will be sold under a sale facility and the proceeds provided to them.
Aquila's board believes that the separation of the exploration assets from its production and advanced development coal and iron ore interests will create a business with independent strategic, operational and investment objectives that is capable of responding quickly and effectively to future opportunities for strategic growth.
This will result in a greater focus being brought to the appraisal and development of the exploration assets, which are arguably ascribed little or no value by the stock market at present.
As part of the demerger process, AEL will be provided with cash resources of about $20 million to enable it to continue its aggressive exploration in Australia and southern Africa.
Following the demerger, Aquila Resources will continue to be well funded with cash and liquid investments of about $200 million.
This will facilitate the further expansion and development of its Australian-based iron ore and metallurgical coal projects, comprised primarily of its interests in the Isaac Plains coal mine, the Eagle Downs coal project (formerly known as Peak Downs East), the Belvedere coal project and the West Pilbara iron ore project.
SHARE PRICE MOVEMENTS
*********************
Shares of Aquila Resources on Friday shot up 97c to $15.45.
Rolling high for the year is $15.65 and low $5.27. No dividend was paid last year. Earnings per share was 43.8c and p/e ratio 35.27. the company has 205.8 million shares on issue with a market cap of $3.1 billion.
Aquila Resources executive chairman Tony Poli calls the carve up of the company's assets the birth of a new Aquila.
Aquila said the separation of the exploration assets from its producing and developing coal and iron ore interests would create a separate business with its own strategic objectives better able to move quickly and capitalise on new assets.
The new company's exploration assets will include coal prospects in southern Africa and Queensland, and iron ore and manganese plays in South Africa.
The key coal exploration prospects to pass to Aquila Exploration include the Bowen Basin, Washpool and Red Hill projects in Queensland, the Waterberg prospect in South Africa and the Asenjo project in Botswana.
Aquila Resources will retain its more advanced Queensland projects including Eagle Downs and Belvedere ' both at pre-feasibility stage - and its producing coal mine, Isaac Plains.
In iron ore, the West Pilbara iron ore project will also stay with Aquila Resources.
The initial share price of the company will be determined via the scheme arrangement documents based on asset values.
"We won't be raising any funds so there will be no dilution to shareholders, so there's no fund-raising accompanying the demerger," he said.
"And we're very confident the market will appraise the assets based on their prospectivity."
Mr Poli also said he expected Aquila's joint venture partner at the Belvedere coal project, Brazilian miner Vale, would acquire the entire operation within the next two years.
He also said should any of Aquila Exploration's projects progress to feasibility stage or beyond they will remain with the new company.
It's been a momentous month for Aquila shareholders with the company also announcing a bonus one-for-five issue of shares as a result of the positive pre-feasibility study for the West Pilbara iron ore project.
The bonus issue recognises the significant progress that the company has made with the development of its iron ore initiative, which began in early 2004 when Aquila decided to expand its raw steel materials interests to include a strategy in iron ore.
In addition, the free entitlement is intended to encourage greater liquidity in the company's shares, which in turn should improve the likelihood of the company being included in the ASX200 or 300 Index.
The entitlement has been issued for nil consideration and was distributed to existing shareholders earlier this month.
The shares are now trading on an ex-entitlement basis.
BACKGROUND
**********
Aquila Resources Ltd joined the Australian Stock Exchange on June 29, 2000, as a minerals exploration company mainly focused on coal and iron ore exploration and the production of coal from the Bowen Basin in central Queensland.
The coal interests of Aquila Resources are comprised of joint venture and wholly owned projects in the Bowen Basin, together with wholly owned projects in southern Africa.
Aquila Energy (S Africa) (Pty) Ltd was formed in South Africa during 2007.
Aquila Resources holds a 50 per cent stake in the Isaac Plains coal project, in which it is targeting a 15-year mine life with annual production of 3.8mt (split 75pc metallurgical coal and 25pc thermal coal).
Production is expected to ramp up to 3.8mt over the next two years. The first coal was shipped in November 2006.
The Belvedere underground coal project has a hard coking coal resource of 2.7bn tonnes.
It is the subject of a detailed exploration study by Companhia Vale do Rio Doce (CVRD) into the potential for the establishment of an 11-12 Mtpa longwall operation.
Aquila Resources currently owns 50 per cent of the project.
The Peak Downs East underground project is 50 per cent owned by Aquila with the potential to produce hard coking coal.
CVRD announced in February 2007 that as part of a broader transaction with AMCI, it has acquired the 50 per cent joint venture interests previously held by AMCI in the Isaac Plains coal mine, the Peak Downs east underground coal project and various other exploration projects.
The company's joint venture interests has benefited from the technical and financial capability demonstrated in CVRD's extensive mining interests around the world.
In other projects Aquila has a 100 per cent interest in 3,013 sq kms of coal projects including Washpool, Wilpenna, Duaringa, Spring Vale, Mt Krocker and Speculation Creek.
It has another 50 per cent ownership of another 3,040 sq km of projects include Exevale, Kingower, Horse Creek and Isaac River.
Aquila Resources commenced exploring for iron ore in the Pilbara region in January 2004.
It was recognised early on that there are two main types of iron ore deposits mined in the Pilbara that should form the priority targets for exploration - banded iron formation (BIF) hosted hematite and hematite-goethite deposits, enriched to form bedded iron deposits (BIDs), and goethite-hematite channel iron deposits (CIDs) comprising detrital iron-rich material transported into tertiary river systems and preserved in paleodrainage channels.
Aquila Resources's iron ore projects cover 11,000 sq kms in the Pilbara region and include Mt Elvire, Red Hill, Yalleen and Mt Stuart.
Aquila holds the rights to minerals other than iron ore and diamonds over 32 exploration tenements covering an area of 5,545 sq kms in the Pilbara region.
The API JV acquired the tenement package from De Beers in early 2006.
The Mt Elvire project tenements are at an early exploration stage with no significant previous exploration or reported occurrences of minerals other than iron or diamonds.
Aquila's exploration objective is to identify targets within the tenement package prospective for the discovery of a stand-alone mineral deposit.
The commodities targeted include manganese, gold, silver, uranium and base metals.
what a great article!
AQA up over a dollar yesterday and nobody says a word - its funny, even on a great stock forum site such as this and people still chase the penny dreadfuls - each to their own
Haven't had a look at CDS yet - running like a freight train today - will do a bit of research tonight
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